Food Processing

http://www.thehindubusinessline.com/2009/06/23/stories/20090623 51441500.htm

Food processing will raise rural jobs, says Sahay Ramesh Sharma

Long way to go: The Union Minister for Food Processing Industries, Mr Subodh Kant Sahay (right), and the Director, Central Food Technological Research Institute, Mr V. Prakash, at the 2nd Food Technology Summit in the Capital on Monday. — Our Bureau New Delhi, June 22 The Minister of Food Processing Industries , Mr Subodh Kant Sahay, reiterated the need to give the food processing sector a 10-year tax holiday, on Monday. Mr Sahay was the chief guest at Confederation of Indian Industries’ (CII) second Food Technology Summit. In his address, Mr Sahay said that the sector still had a long way to go and the Planning Commission had not understood the importance of the sector. He urged the Planning Commission to give priority to the sector. According to him, the food processing sector is the key to generate jobs for the rural population which forms 70 per cent of the nation. Also, he pointed out that branding remains a problem in this sector, “70 per cent of this sector is small and micro industries, for them branding is a problem.” The Chairman - CII National Committee on Food Processing & Food Regulatory Affairs and CEO – India Foods & President – India Region PepsiCo India Holdings Pvt Ltd, Mr Gautam Mukkavilli, said that the policy framework should be such that India gains and retains market share globally. Towards this affect, the Government aims to set up 10 food technology and entrepreneurship incubation centres in 2009 and 20 Food Technology Parks in 2010. According to him, the food processing sector received investments worth $144 million between 2007 and 2008, as against $5.7 million the previous year. During April 2008-January 2009, the sector received $760 million worth of investments.

http://www.telegraphindia.com/1090223/jsp/jharkhand/story_10577621.jsp Baba’s blessings for mega food park foundation - Ramdev’s ayurved company pledges to invest 25 per cent in Rs 125cr Getalsud project AMIT GUPTA

Ranchi, Feb. 22: Here’s some food for thought — straight from Baba Ramdev’s guidebook of healthy living. The guru has pledged to invest in the state’s first mega food processing park that is coming up on the outskirts of the capital for more than Rs 125 crore. Tomorrow, he will lay the foundation stone of the project, in which his company, Patanjali Ayurved Limited, will be a major stake holder. Governor Syed Sibtey Razi and Union minister of state for food processing Subodh Kant Sahai, who is also a Ranchi MP, will be present on the occasion. The food park, spread over more than 50 acres, is coming up in Getalsud near Rukka Dam. Consultant major ILFS has been roped in as the process manager for the project. The park is tipped to generate 30,000 direct and indirect jobs in the state. Anand Mohan Jha, the Delhi-based assistant manager of ILFS, told The Telegraph that a Special Purpose Vehicle (SPV) has been formed for the project in which Patanjali Ayurved Limited will act as the biggest stakeholder, promising an investment of about 25 per cent. “The Union food processing ministry will provide a grant of around Rs 50 crore. The rest of the funds will have to be arranged by the SPV that will not only own the food park but will also develop it and later manage its affairs. Initially, about 35 entrepreneurs will be allocated space to set up units at the park,” said Jha. The park will house a central processing unit, a big cold storage set-up, deep freezing, bulk packaging and tetra packaging facilities. Jha and Awadhesh Kumar, the director of the Union ministry of food processing industries, recently visited Ranchi and held a meeting chaired by Sahai on the project. Industry representatives also attended it. Sources said that given the core-competency of Jharkhand in vegetable cultivation, Baba Ramdev is also keen on setting up a unit for extracting, processing, packaging and selling juices of bitter gourds and gourds. The vegetables are considered to be beneficial in fighting obesity. Special secretary of the industries department Dhirendra Kumar said that they had already earmarked 24 acres possessed by Ranchi Industrial Area Development Authority in Getalsud for the food park. “More acres will be released once construction starts,” Kumar added. After the foundation stone is laid, the SPV will submit a detailed project report to the union ministry for the approval of a high-level committee. Jha said that it would take about 24 months to wrap up the project after the second level of clearance from the ministry. Vice-president of Jharkhand Small Industries Association Sharad Poddar said: “With the setting up of the food park, farmers will be able to get better prices for their seasonal vegetables and other products that are otherwise sold at throwaway prices in rural markets.”

http://www.telegraphindia.com/1090302/jsp/jharkhand/story_10611920.jsp Hygiene seal on rude food - RMC to begin quality management AMIT GUPTA

Ranchi, March 1: If the Ranchi Municipal Corporation (RMC) has its way, you will soon be able to gorge on street food without fear. The civic body is making sincere efforts to get “safe food town” status for the capital that will allow both local residents and the floating population, including tourists, to eat street food that is both tasty and hygienic. The civic body has embarked on the hygiene programme to upgrade the quality of food being sold by roadside vendors and to ensure that they are safe for consumption. The Union ministry of food processing is sponsoring the programme and has, initially, shelled out Rs 15 lakh. Union minister of state for food processing and Ranchi MP Subodh Kant Sahay will launch the project on Tuesday. Ranchi will be the first city in the state to bag the “safe food town” tag from the Centre once the programme is over. Under the scheme, food vendors will be first identified and divided into three zones. Then the civic body will issue them identity cards followed by proper training in which experts will educate the vendors about food processing, storing techniques, cleanliness and hygienic handling of food items. After the training, a monitoring team will ensure that the vendors are abiding by hygiene rules through regular inspections. “About 30 per cent of the population in Ranchi depend on roadside vendors for their morning, afternoon and evening meals. But at present, no machinery is in place to check the quality of food items served on footpaths. There is dearth of food inspectors. And the few present mostly concentrate on permanent food joints. Hence, proper training and a monitoring system are the need of the hour to ensure availability of quality food at roadside kiosks,” said RMC’s chief executive officer Rahul Kumar Purwar. The programme forms a part of the central government’s three-year plan to create “safe food zones” in various cities to improve the quality of street fare. Around 500 vendors in each city will be part of the programme. All the vendors will be covered under health insurance schemes. The private sector also has a role to play in this venture. Private companies have been roped in to sell newly designed push carts to the vendors at a discount. In turn, the companies will be allowed to advertise their products on the surface of the carts. The modular units will have several compartments for cooking, storing products and ingredients and making fruit juices. The vendors will be entitled to 25 per cent financial assistance for purchasing the food selling units.

http://www.hindu.com/2009/10/07/stories/2009100751881100.htm

PM: rationalise tax structure for food processing industry Gargi Parsai NEW DELHI: Prime Minister Manmohan Singh on Tuesday called for the rationalisation and simplification of tax structure for the food processing industry that has the potential to transform rural economy. “I recognise that we need to look at the taxation structure in the industry. Though primary agricultural commodities are mostly exempted from taxes, processed foods are subjected to multiple levies. There is therefore an urgent need to rationalise and simplify the tax structure,” he said, while opening the first-ever State Ministers’ Conference on Food Processing here. Representatives of the industry were among those who attended the conference. The Prime Minister urged the States to play the all-important catalytic role in the food processing industry so that small and unorganised players could become competitive in the world market. “The food processing industry is fragmented and most of the players are small and unorganised. This poses a special challenge to the development of the industry as a whole. The small-scale sector will require hand holding to make them profitable and even competitive in the world market,” he said. “The State governments can play and should play an important catalytic role in this effort in partnership with bankers, financial institutions and technical and management institutions. Small and Medium Enterprise clusters could be identified for all round upgradation by infusing new technology, new packaging methods and by providing adequate marketing support.” Impressive growth Despite the economic slow-down the food processing industry in India grew at an impressive rate of 14.7 per cent in 2008-09, he said. He asked the industry to “think big” and “think globally” about the future of the sector. “There is no reason why they should not emerge as global brand names just as in our IT industry has done to our great satisfaction. “I recognise that there are a number of constraints both in the forward and backward linkages in the sector. But if we can get our act together, as we must, India can emerge as a leader in the global food processing industry.” Recognising that a few States had already formulated their own State specific policies, Dr. Singh urged other States to do the same. The Agriculture Produce Marketing Committee Act should be implemented and so also the Goods and Service Tax that was aimed at integrating State economies and creating a single, unified Indian market. National policy Recognising the effort of the Ministry to draw up a national food processing policy, he asked States to work in cohesion and seize the immense opportunities on offer “This is a sunrise industry and if

we give it the importance it deserves, it has the potential to dramatically improve rural livelihood opportunities and employment, to bridge the rural urban divide and to improve farming methods and practices,” he said. Noting that the southern States were aware of the potential of the food processing industry while Central and northern States were also coming up, Food Processing Minister Subodhkant Sahai said the States should formulate investment-friendly policy.

http://www.indianexpress.com/news/promote-food-processing-industry-pm-tostates/526078/0

Promote food processing industry: PM to states Lamenting high level of wastage and very low value addition in farm products in the country, Prime Minister Manmohan Singh has called for rationalisation of tax structure for the food processing industry — a move that can transform the rural economy. “I recognise that we need to look at the taxation structure in the industry. Though primary agricultural commodities are mostly exempted from taxes, processed foods are subjected to multiple levies. There is, therefore, an urgent need to rationalise and simplify the tax structure,” the PM said while addressing the conference of state food processing ministries here on Tuesday. Singh lamented low level of processing of farm products, which stands at only 6 per cent as against 60-80 per cent processing in developed countries and over 30 per cent in most Asian and Latin American developing countries. He said this amounts to “loss of business opportunities as well as losses in farm income” in rural India.

Highlighting 15 per cent growth rate of food processing industry last fiscal year, despite economic downturn, Singh underlined the need to strengthen infrastructure, widen innovation and technological development for the sector and work towards achieving international standards of food safety and quality to compete in the global markets. He called upon the state governments to engage pro-actively in promoting food processing industry for the benefit of the economy. “The state governments can play and should play an important catalytic role in this effort in partnership with bankers, financial institutions and technical and management institutions. SME clusters could be identified for all-round upgradation by infusing new technology, new packaging methods and by providing adequate marketing support. This is a sunrise industry and if we give it the importance it deserves, it has the potential to dramatically improve rural

livelihood opportunities and employment, to bridge the rural-urban divide and to improve farming methods ,” he said. Union Food Processing Industry Minister Subodh Kant Sahay said the Centre has projected an investment of Rs 1 lakh crore from private sector, in the sector by 2015. http://www.hindu.com/2009/10/06/stories/2009100659751000.htm

PM for uniform food processing policy Gargi Parsai NEW DELHI: Prime Minister Manmohan Singh will inaugurate here on Tuesday the first-ever national conference of State food processing Ministers to give a push for a uniform policy for the growth of the sector. Of the 35 States and Union Territories invited, 32 have confirmed their participation as have representatives of industry and research institutions. The conference will seek “to find the way ahead” so that the estimated post-harvest loss of Rs. 30,000 crore-worth of perishables could be limited. “Food processing is called the sunrise sector but the sun is rising slowly, as the last step that needs to be taken for the food processing policy to be in sync with the overview of the Planning Commission, has to be taken,” Food Processing Secretary Ashok Sinha told journalists here on Monday. The focus of the policy will be to step up the level of processing food and related produce in the country, bring down the wastage of perishables and non-perishables, scale up research and development and create employment opportunities in the process. The Centre will table the issue of reforming the Agriculture Produce Marketing Act, which allows for setting up private markets. At the same time it will seek better coordination between the Centre and the States in marketing arrangements and tax uniformity . Already, new food processing units in perishables have a 100 per cent tax exemption for the first five years and a 25 per cent exemption for the next five years. The Ministry’s ‘Vision 2015’ plan envisages doubling India’s share in the world food processing market to 3 per cent, increasing the level of processing of perishables from 6 to 20 per cent, and raising the value addition of such products from 20 to 35 per cent. The industry is suffering from lack of finances, raw materials, technology and backward linkages with farmers. There is a possibility of the National Bank for Agriculture and Rural Development initiating a venture in the food processing industry. “If the project and entrepreneur is good, funds will come,” Ajit Kumar, joint secretary said.

http://www.oppapers.com/essays/Pestel-Analysis-Asda/190998

Pestel Analysis -Asda Pestel Analysis -Asda MISBC PESTLE Analysis of a food retail industry - ASDA Must explain specific point relating to Industry Opportunities and threats Write down 10 -20 points in each PESTLE POLITICAL: 1. Government policy on taxation 2. Political unrest – due to influx of large number of foreign nationals in the country. 3. Unstable Government due to govt inability to stabilise the economy. 4. Government education policy – efforts to encourage more people to stay on high education ECONOMIC: 1. Credit crunch 2. Recession –leads to unemployment 3. High interest rates 4. High cost of living – e.g. high fuel prices/ high supermarket prices (this could lead to lower demand. 5. New line of products for EU citizens 6. Increased demand due to online-shopping 7. Increase in employment e.g. due to online-shopping – i.e. drivers and ‘home shopping assistants’ SOCIAL: 1. Large influx of EU citizen in the country leading to a high demand for accommodation, welfare, healthcare and education 2. Changes in social trends –

3. Ageing population could lead to an increase to ASDA’s pension payment for their employees. It could also lead to another source of labour pool for ASDA to tap into. 4. An ageing population could also lead to unwillingness to work and an increase in pension 5. Lifestyle changes – longer opening hours in supermarkets means that people are working longer and / or flexible hours 6. In areas of high concentration of ethnic groups, goods and services are targeted towards that ethnic group e.g. Slough / Southall TECHNOLOGICAL: 1. New ways of shopping – online-shopping 2. New product types i.e. mobile phones, MP3 players etc 3. Improved efficiency in stock control...

http://www.co.monterey.ca.us/housing/pdfs/castrov_proj/app_h.pdf

Major Drivers of Change in Agriculture and Food Processing As with most other industries, the food and agriculture industry is dynamic and continuously evolving in response to changes in consumer tastes, competition, government policies, technological advances and costs of doing business, including labor costs. Castroville’s food and agriculture industry has become what it is today as a result of these external and internal pressures to change. The Salinas Valley’s key advantage is its climate. The growing season is long, many times providing two or more harvests per crop on the same piece of land, increasing the return on investment on land and infrastructure. Productivity (tons, pounds or cartons harvested per acre) has increased so quickly as a result of innovations in cultivation practices that usually there is more harvested than can be consumed by the fresh market. Likewise, the long growing season allows for a steady, loyal workforce because workers are guaranteed at least nine months of work during the growing season and often year-round work as well. Changing consumer tastes Consumer tastes have changed over the last two decades increasing demand for fresh produce, but also convenience foods—those that require little preparation before serving. In response, more and more of Castroville’s growers are devoting a sizable portion —if not all of their capacity—to meeting the consumers’ demand for fresh berries, vegetables, and salads. While the Castroville area was once the site of a large artichoke processing industry, today there is virtually no processing of artichokes. Nearly all artichokes are sold for the fresh market.

Another incentive for growers to supply the fresh market is the higher prices they get for perishable produce grown for the fresh market; growers receive much lower prices for produce sold to processors as there is more competition from overseas growers and processors in that market. INCREASING PRODUCTIVITY WORLD WIDE The increase in productive capacity of Pacific Rim countries (Asia and South America) has led to a worldwide over-supply of produce. This, combined with increasing productivity per acre of U.S. land, especially in the Salinas Valley, has resulted in lower prices for everyone. There is consensus among growers that the amount of land needed for growing food and flowers could be reduced without an appreciable difference in income. WORLD TRADE AND LABOR COST DIFFERENTIAL ACROSS NATIONS Though this region’s particular climate is rare in the rest of the United States, it is not unique to other parts of the world, such as South America, Asia and Europe, especially Spain. But, just as the climate makes the region superior for growing flowers, fruit and vegetables, it also makes an attractive place to live and work. Constrained land supply and demand for housing have conspired to increase land rents, housing costs and, as a result, labor costs. Though other regions in the world have similar climates, they do not have the high housing and labor costs APPLIED DEVELOPMENT ECONOMICS PAGE 11

unique to Castroville and are producing flowers, berries and vegetables far cheaper than California growers can. Castroville is the “artichoke capital of the world.” And Monterey County produces 85% of all Artichokes grown in California and the U.S. (Riverside County produces another 10% during Monterey County’s wet winter months) But artichokes are grown wherever there is a Mediterranean climate—dry summer days and cool nights. The largest international threat to the artichoke market is Spain. There, according to agricultural industry executives, artichoke

growers and distributors are subsidized by their government to grow and ship artichokes. And, the United States has either reduced or eliminated tariffs on imported artichokes from Spain. In turn, domestic artichoke processing is virtually non-existent as canned and bottled artichokes from Spain which fill the restaurant and food chain shelves are priced lower than what domestic processors could sell them for. Spanish artichokes could not survive the long trip to American shores, so California artichokes are grown exclusively for the fresh, domestic market. The biggest current threat to the tree fruit, berry and fresh vegetable industry is China. So far, China’s capacity to meet world demand is limited—they simply are not producing enough—yet. As their capacity grows, exports of Salinas Valley-grown vegetables and berries to the Asian market will decrease. Castroville vegetable and berry growers are predominantly supplying produce for the domestic fresh market but also to the Canadian and Asian markets. Some operate farms in the Coachella Valley and in Chile in order to meet year-round demand for fresh produce. China is increasingly a world player in food processing. With the advantage of new plants using newer technology and machines and lower labor costs, China will be the source of processed fruits and vegetables for most of the Pacific Rim. Fresh produce will be exported to most of Asia—China, Japan, Korea, and India-- and processed vegetables and fruit will be shipped overseas in the form of juice concentrate, syrups, jams, or frozen foods. Since few local growers supply the processing industry, imports of processed vegetables and fruit from China may have only minimal impact locally. The largest impact will be the loss of the Asian export market, primarily Japan. For the flower industry—both nursery and field grown--South America, especially Columbia and Ecuador, has been the most powerful competitor. South America has been increasing its domination in the world flower market. In the 70s they began to dominate the carnation

market, and in the 80s, they began to dominate the rose market. California flower growers are now forced to diversify away from roses and carnations and into a multitude of other varieties, including orchids, bulb plants, alstromerius and statice. COSTLY HOUSING INCREASES LABOR COSTS Flower, fruit and vegetable production is labor intensive, requiring more labor per pound than grain crops that are machine-harvested. Labor is often the primary input and high labor costs lead to higher prices for fresh produce. (There is some experimentation going on with machineharvesting fruits, but only for fruits that will be processed into juices or jams, i.e. wine-grapes) APPLIED DEVELOPMENT ECONOMICS PAGE 12

Due to Castroville’s constrained housing supply, housing costs are among the highest in the nation. To afford area rents, farm workers demand higher wages. For now, Castroville’s unique nine to ten-month growing season and the high value of crops grown there, allow growers, shippers and processors to attract experienced and skilled workers by offering higher wages and health benefits. In fact, Monterey County farm worker compensation is among the highest, if not the highest, in the nation. GREATER NEED FOR ENGINEERING TECHNICIANS AND OTHER TECHNICAL WORKERS All food processors, packers and distributors interviewed need workers with greater competency in literacy, numeracy and computer skills. They also need workers that can operate and maintain increasingly more complex and computer operated machinery and equipment. So far, there is a dirth of such workers in the region. The cost of labor in the region is driving food processors to continuously look for ways to cut costs. Since lowering compensation is not an option, they are making investments into modern capital plant and equipment as a means of increasing productivity per worker. Only in this way can the processors compete with both domestic and international rivals and stay open for business. With upgrades in equipment, processors need workers with more sophisticated literacy,

numeracy and computer skills. All cold storage and processing managers interviewed for this study provide on-the-job training, whether they employ hundreds of workers or only a dozen. On-the-job-training involves not only basic work skills, such as teamwork, conflict resolution, and managing change and diversity, but also involves learning a particular firm’s culture, philosophy, processes, operations and requisite skills. One is widely known for its on-going ESL classes in the evenings. Companies seem to have little problem recruiting the administrative and managerial staff they need. They have a considerably more difficult time recruiting and keeping technical staff, such as electricians, machine operators, mechanics and machinists—people who can operate and maintain increasingly complex and computer operated machinery and equipment. As processors automate more of their operations, they require workers with a higher level of technical competency. For the most part, processors are forced to do remedial training themselves, which cuts into the profitability and viability of the firm. Only one company interviewed was taking advantage of a statesponsored training grant. Companies were not at all aware of any technical training programs offered at any school in the region or of any statewide programs. None have heard of the Workforce Development Board. One who knew about reimbursement of training expenses refused to do the paperwork necessary stating that the opportunity cost in time needed to fill out paperwork was not equal to or greater than the benefit. APPLIED DEVELOPMENT ECONOMICS PAGE 13

Without the requisite technicians, processors can’t take full advantage of newer equipment. And, without engineers trained to design, build and maintain newer equipment, U.S. food manufacturers must go to Germany or Italy to buy increasingly more expensive and sophisticated machinery. The shortage of technicians and industrial engineers is universal throughout the United States,

affecting all industries, including software. Whereas European and Asian countries such as Germany and China provide technical/vocational school options for students not desiring an academic career, the U.S. has no such option. Most skilled trades people like machinists and other technical workers will be retiring within the next decade. With few technical/vocational schools opening in the west and many of the east coast schools closing due to drops in enrollment, manufacturers are forced to pay 6-figure salaries to the few skilled trade workers available. Part of the drive to move manufacturing overseas is to take advantage of other countries’ investments in vocational/technical training, providing stateof-the-art plants and highly skilled workers. CONSOLIDATION OF BUYERS Both retail and institutional buyers, such as Albertsons, Wal-Mart, Sysco and others have bought out competitors, limiting the number of customers for fruit, vegetables and flowers to little more than a handful. These buyers have more leverage to keep prices low, limiting the return to growers. Also, these larger, but fewer, buyers are limiting their suppliers, requiring each to be able to supply produce year-round. Growers, as a result, are increasingly operating farms in Coachella Valley (Riverside County), Florida, Mexico, and Chile. MAINSTREAMING OF ORGANIC According to the 2001 Agricultural Commissioner’s report, organic production increased from $12 million in 1994 to $108 million in 2001. As larger growers devote more acreage to organically grown fruit and produce, the premium that growers have received for organic crops will disappear. Small farmers who were able to farm viably due to the premium on organic will be forced out of the industry, forced to diversify and/or supplement with non-farm income or grow larger. Though there may no longer be a premium paid for organic, there will still be a preference for organic in some markets, and this preference alone can sustain some organic growers.

ENVIRONMENTAL REGULATIONS: METHYL BROMIDE, WATERWAYS AND BIODIVERSITY Methyl bromide, a fumigant widely used in production of strawberries and other fruits and vegetables, is scheduled for a complete phase-out by January 1, 2005 in accordance with the Montreal Protocol, a global treaty to control ozone depletion. By 2003, the supply of methyl bromide will have dropped by 75% since 1991. APPLIED DEVELOPMENT ECONOMICS PAGE 14

At this point, no truly viable alternative to methyl bromide exists. Not using it could drastically reduce production and viability of the industry within the entire United States. Research by chemical companies, the UC Sustainable Agriculture Research and Education Program and the Strawberry Commission is underway to find an alternative. Lobbyists from berry grower associations are pressuring the Bush Administration to delay the effective date of the regulation or exempt certain crops, such as strawberries. Use of 1,3-D (Telone) is expected to increase by up to 500%, but current State restrictions limit total use within 36square-mile areas, known as townships. In the past, farm cultivation practices led to pollution of creeks and streams and erosion of farmland leading to excessive silting of waterways. As a result, legislators enacted laws that put restrictions on chemical use and cultivation of hillsides. Farm cultivation practices have changed dramatically in the past 20 years resulting in safer work environments for workers, safer food for consumers, and healthier waterways for wildlife and urban water supply systems. At the same time, productivity has increased just as dramatically, demonstrating significant innovation in agricultural practices. Despite these changes and innovations, farmers are continuing to be challenged by increasingly restrictive environmental regulations meant to preserve the diversity of wildlife and healthy ecosystems. For instance, despite severe flooding of rivers in the region, proposed policy changes may result

in lowering the capacity of flood channels to safeguard wild life habitat. Reduced capacity of flood channels means farms will be more prone to flooding than they were in the past. After the 1995 floods, Artichoke Industries, Inc., (aka Cara Mia) was forced out of business when their supply of artichokes was flooded. Domestic retailers stocked their shelves with Spanish artichokes and Cara Mia could never regain its dominance. DISTRIBUTION COSTS Grower/shippers sell their produce FOB. As such, the buyer, be it Safeway or Wal-Mart, pays for shipping the produce—usually by refrigerated truck. The buyer is responsible for contracting with trucking firms and there are several in the region. On the other hand, processed food and most flowers are shipped by the processor and flower grower. Processed food can travel by refrigerated rail cars or refrigerated trucks. Flowers are also sent by air to the East Coast. For shipping small quantities of extremely perishable goods, such as flowers and fresh berries, trucks and air travel work well. But for large quantities, trucks are very expensive and rail is more efficient—when it’s working. UP’s ability to be responsive to shippers of perishable foods and flowers has been limited. Their stock of refrigerated cars is obsolete and limited, the loading facilities and the personnel are non-existent, and resulting loss and damage is too high to be used profitably. APPLIED DEVELOPMENT ECONOMICS PAGE 15

Castroville’s location close to Highway 101 is advantageous for trucking. However, trucking will become increasingly more expensive in the future. In the next few years, diesel powered vehicles will be required to use a newer, cleaner fuel, requiring both changes to the diesel engine and changes to the fuel supply. URBAN ENCROACHMENT Urban encroachment is a threat to the viability of agriculture for two reasons. First, EPA restricts the application of chemicals within a prescribed distance of urban development, so as houses, schools or stores locate close to farmland, that farmland is effectively put out of

production. Second, though urban dwellers prefer to have property that abuts farmland, they are annoyed by and fearful of typical farm operations, including the application of chemicals, tilling (produces dust), harvesting (lots of strangers around) and noise. Their complaints agitate farmers and cause them to implement practices that reduce yields and return on investment. Buffers between farm operations and food processing and urban development are critical to the viability of agriculture. Farm operators, up to now, have been forced to pay for these buffers in the form of land lying fallow or under-utilized. County land use policies need to bear in mind the impact on farming of indiscriminate location of urban uses, especially housing. OTHER KEY DRIVERS OF CHANGE Other key drivers of change in the food processing industry have to do with private branding, packaging, the increasing cost of water and electricity, and food security. Private branding is currently more prevalent in Europe than in the U.S. Major U.S. retailers are catching on though and increasing the number of food and other items with their own private label on them, such as “Safeway Select.” They will devote more shelf space to their own label, drive costs down by importing supplies and offer two-for-one sales that is similar to dumping, which creates a tougher competitive environment for food processing companies. Packaging--Consumers and retailers are increasingly bombarded with a dizzying array of products in all different size containers—the same is true in berries, juices and other food products. Grower/shippers and processors with limited flexibility in packaging may be at a disadvantage to respond quickly to changes in demand in packaging. Cost of water--There is, as yet, no feasible way to collect rainwater for use during the dry summer months. Much of the water needed for irrigation is pumped from the underlying aquifer. But during dry years, water is pumped from the aquifer at a faster rate than it is being recharged. This is causing saltwater intrusion from the ocean, effectively making the water from

some areas of the aquifer unusable for irrigation. Cost of gas and electricity—according to a local greenhouse, gas prices skyrocketed to $50,000 per month during the winter of 2001. And, a little over 2 years ago, another local firm, a food processor, paid $16,000 per month for electricity; now it pays over $96,000/month for electricity. To remain competitive, local firms need access to fairly priced electricity and gas. APPLIED DEVELOPMENT ECONOMICS PAGE 16

Food security—American food processors and food growers are the most highly regulated industries in the world. They are regulated by EPA, FDA, USDA, state agencies, such as Cal OSHA, regional agencies and local agencies. Food safety has always been their primary concern. As a result American-grown produce can demand higher prices around the globe because the buyer knows it is the safest imported food available. But now, American firms are investing even more in securing the food they are shipping, taking steps to insure that the food is not tampered with either on the plant site or in transit.